With growing instances of cash transactions at charitable trusts owned by corporate entities, the government has tightened the income tax provisions on such dealings.

Budget 2018-19 has proposed a slew of changes — including restricting the adjustment in income-tax (I-T) filing, more powers to tax officials under the Black Money Act, prosecuting shell companies for not filing tax returns and higher penalty on offenders.

The Budget also has a provision to explain cash payments by charitable or religious trusts, a move aimed at plugging a loophole that was being exploited by issuing cheques to charities and claiming tax exemption.

“At present, there are no restrictions on payments in cash by charitable or religious trusts or institutions. There are also no checks on whether such trusts or institutions follow the provisions on deduction of tax at source. This has led to lack of an audit trail for verification of application of income. In order to encourage a less-cash economy and to reduce generation and circulation of black money, it is proposed to insert a new explanation,” said the Budget.

The Finance Bill also seeks to rationalise tax provisions relating to prosecution for failing to furnish I-T returns. The exemption given to wilful defaulters would not be applicable on shell companies. Under Section 276CC, if a person fails to furnish tax returns on time, he can be imprisoned for up to seven years and fined. However, the action cannot be taken if the person pays tax on the total income determined on regular assessment (if tax deducted at source does not exceed Rs 3,000 after reduction in advance tax). However, shell companies or companies holding benami properties are not to be given this leeway.

Further, the Budget seeks to put restrictions on the scope for adjustment while processing tax returns. At present, total income or loss is computed after adjusting for addition of income appearing in Form 26AS or Form 16, which has not been included in computing the total income in the return.

Also, the Budget wants widened powers to investigating officers of deputy director level probing foreign tax evasion under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. Assistant director/deputy director investigating a case of undisclosed foreign assets may also initiate proceedings and impose a penalty. However, the said authorities would require an approval from officers of the rank of joint director or additional director to impose a penalty.

To ensure compliance under reporting obligations, the Finance Bill has proposed to increase the penalty for not furnishing financial statements from Rs 100 to Rs 500 and from Rs 500 to Rs 1,000 (for failing to file despite extension of deadline), for each day of continuing default. This would be applicable on those required to furnish a statement of financial transactions.